Question

1. Discuss with relevant examples the extent to which the portfolio life cycle hypothesis explains the recent trend in foreign direct investment flows to developing countries.

Answer 1

Portfolio life cycle hypothesis will be reflecting the investment into different assets by individuals according to their life cycle and these life cycle hypothesis of portfolio holding will be important in management of individual financing.

It is generally seen that the individuals who are younger will be more exposed to equity sector while those individuals who are comparatively older in age will be looking for more fixed income and debt securities.

there has been a recent trend in foreign direct investment flows to developing countries because these developing countries are highly underpenetrated and there is a huge economic potential for capital appreciation so it is seen that all the individuals who are mostly of younger ages are looking to invest into those funds who are investing their money into the outside market and they are trying to generate a higher rate of return because these developing economy has the potential of generation of high growth capital appreciation and the individuals who are mostly attractive to the stock markets at younger ages, are increasing day by day, so due to this,they are investing their money into such funds who are investing through offshore funds and they are trying to maximize their capital by investing into developing countries.